Filing bankruptcy can be an intimidating process. Understanding key bankruptcy terms can help make it more manageable. At Levitt & Slafkes, P.C., we specialize in helping clients get through the bankruptcy process with compassion and ease.
Whether you are thinking you may need to file bankruptcy, or just want to understand the bankruptcy process, becoming familiar with some important terms can provide clarity and ease any concerns.
Here’s a list of key bankruptcy terms you should know:
1. Chapter 7 Bankruptcy
Chapter 7 is one of the most common forms of bankruptcy. In a Chapter 7 bankruptcy, unsecured debts (such as credit cards, medical bills, and unsecured loans) are discharged (wiped out). Most people can keep their home, car and all of their belongings in a Chapter 7 bankruptcy.
2. Chapter 13 Bankruptcy
Chapter 13 is often referred to as a “wage earner reorganization bankruptcy” and is often used by individuals who have a regular income but are having trouble paying their bills. In a Chapter 13 bankruptcy, the individual proposes a repayment plan to pay back some or all of their debts over 3 to 5 years. When the repayment period is over, any remaining unsecured debt may be discharged. Chapter 13 can be used to catch up on mortgage payments and avoid foreclosure.
3. Chapter 11 Bankruptcy
Chapter 11 usually involves a corporation or a partnership that wants to reorganize their debts to pay them back. A Chapter 11 debtor proposes a reorganization plan that seeks to pay its creditors over time while still operating their business. Individuals in business are also eligible to file a Chapter 11 bankruptcy.
4. Automatic Stay
The automatic stay is one of the most immediate and valuable effects of filing for bankruptcy. When you file a Chapter 7, 11, or 13 bankruptcy, creditors are legally prohibited from taking further collection actions against you. They cannot file or continue lawsuits or wage garnishments. As soon as the bankruptcy is filed your creditors are not even allowed to call or text you.
5. Bankruptcy Petition
A bankruptcy petition is the term for the legal papers filed with the bankruptcy court that begins a bankruptcy case. The bankruptcy petition is an official form and requires a complete listing of all of the debtor’s assets and liabilities. Events that happen before the petition is filed are called pre-petition and events that happen after filing are called post-petition.
6. Creditor
A creditor is any entity that you owe money to or claims that you owe money. This can include banks, credit card companies, doctors, hospitals and mortgage companies.
7. Debtor
A debtor is the term for a person or business who has filed a bankruptcy case.
8. Discharge
A discharge is the legal elimination of certain debts when your bankruptcy case is over. When a debt is discharged, it cannot be legally collected against the person or business that filed bankruptcy.
9. Means Test
The means test is used to determine whether an individual qualifies to file a Chapter 7 bankruptcy. The test looks at the filer’s income, expenses, and family size to assess whether they have enough disposable income to repay a portion of their debts. If you pass the means test, you may be able to proceed with a Chapter 7 bankruptcy. If not, you may need to file for Chapter 13 instead. The means test then determines the minimum amount you must pay to your creditors.
10. Plan Confirmation
In a Chapter 13 bankruptcy, the court will review your proposed repayment plan and determine whether it is fair and feasible. If the court agrees with the terms of the plan, it will be confirmed.
11. Secured vs. Unsecured Debts
Debts are categorized as either secured or unsecured. Secured debts are loans backed by collateral, such as a mortgage or car loan. If you fail to pay, the creditor can take possession of the asset by foreclosure or repossession. Unsecured debts, such as credit card debt or medical bills, are not tied to specific property.
Conclusion
Understanding the terminology associated with bankruptcy is important to successfully navigate the bankruptcy process. The attorneys at Levitt & Slafkes, P.C., are dedicated to providing our clients with the knowledge and resources they need to make informed decisions about their financial future.
For further guidance or if you have questions about bankruptcy, reach out to Levitt & Slafkes, P.C. today! We are here to help. Call us at 973-323-2953, or contact us online to schedule a free consultation.
We are proudly designated as a debt relief agency by an Act of Congress. We have proudly assisted consumers in filing for Bankruptcy Relief for over 30 years. The information on this website and blogs is for general information purposes only. Nothing should be taken as legal advice for any individual case or situation.